You remember that the last loan Aigrette took out was at an interest rate

  

In this assignment, you need to review and provide answers to the questions related to Aigrette’s financial statements.

Consider the following scenario:

You’re feeling pretty good about Aigrette’s financial statements and stop by Mr. Morton’s office to let him know you’re caught up.

“I’m glad you stopped by,” Mr. Morton says. “I’m thinking about offering leases to our customers. I know we lease some of our equipment, so why shouldn’t we provide that same option for the people who buy our cars? But I’m not sure how leases affect our financial statements. You’d better look into that for me, and let me know what you think.”

You tell him you’ll check into it, and you head back to your office. In the file cabinet Ms. Koffler used, you find a file labeled “Equipment Leases.”

You remember that the last loan Aigrette took out was at an interest rate of 8%. You are sure the company could get that same rate again if they needed a loan. Aigrette uses straight-line depreciation for all equipment.

You make some notes as you look through the documents, and here’s what you have when you are done:

  

Assembly   Equipment

Welding   Equipment

 

Yearly rental (paid at beginning   of year)

$10,500

$11,000

 

Lease term

12 years

10 years

 

Estimated economic life

20 years

10 years

 

Purchase option

No

$5,000 at end of lease

 

Renewal option

No

No

 

Fair market value at beginning of   lease

$100,000

$75,000

 

Cost of asset to lessor

$100,000

 

Guaranteed residual value

None

$5,000

 

Unguaranteed residual value

None

None

 

Executory costs

None

None

 

Paid by Panache

$1,000 per year

None

 

Paid by lessor (maintenance)

None

$1,000 per year (est.)

 

Implicit rate of lessor

Not known

8%

 

Estimated fair market value at end   of lease

$10,000

$5,000

 

Date lease was entered into

January 1, 2011

January 1, 2012

Next, you do some research into the types of leases Aigrette could offer to its customers. Finally, you are ready to write a memo to Mr. Morton about Aigrette’s leases.

Based on your analysis of the information provided, create a memo for Mr. Morton in 3- to 4-page Microsoft Word document that includes the following: An assessment of the assembly equipment and welding      equipment leases that includes what type of lease each is. Embed the journal entries, in a Microsoft Excel      worksheet, that would have been made at the inception of each lease and      the journal entries that will be made for 2011. An evaluation of the types of leases that Aigrette      could offer its customers and the effect of each type of lease on      Aigrette’s financial statements. Recommend the type of lease for Aigrette, why you chose      it, and the terms the leases would need to include to qualify as that type      of lease. Create the required journal entries in a Microsoft      Excel worksheet and include a link to this in your document. Use the spreadsheet      to present your analysis as well.

Support your responses with examples.

Cite any sources in APA format.

 

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